The
telecom sector in India has gone through a major upheaval over the
past three years, and competition has intensified between some of the
biggest players in the business. Much of it has to do with the savage
price wars instigated by Reliance Industries Limited backed Jio and
erstwhile dominant telecom company Bharti Airtel, which has not come
out of it better. As a matter of fact, the competition is going to
intensify in the future, and hence the Indian company decided to
raise $4.6 billion in capital through share and bond sales. In a new
development, Singapore Telecommunications Ltd, which is better known
as Singtel, has announced that it is going to buy up $525 million
Airtel shares.

The
capital raise from Airtel is part of a larger initiative to slash
debt significantly and ensure that it has the wherewithal to fight
Jio in the price wars. Due to the debt burden that now stands at $15
billion, Airtel decided to conduct a rights issue to the tune of $3.6
billion. The rest of the capital is going to be raised through bonds.
It is important to keep in mind that the new shares will be sold at
an attractive discount of around 30%.

Singtel
already holds a significant stake in Airtel, and after it buys 170
million shares for $525 million, it will further raise its holding in
the company by a fair margin. Prior to this deal, Singtel held a
39.5% stake in India’s second-biggest telecom company, but once the
deal is completed, it will have 35.2%. However, while announcing the
deal, the Chief Executive Officer of Singtel Arthur Lang said that
they are confident about their investment in Airtel. He stated, “Our
participation in this rights offering … reflects our long-standing
commitment to Airtel and the confidence in the future of the Indian
market.”

Singtel
itself has been in a bit of flux lately, and in 2018, their profits
nosedived by as much as 14% in the September quarter. However, what
is more important is that the company also has a net debt of $7
billion and it remains to be seen how the company’s shareholders
react to this investment. The price war has been damaging but Airtel
has managed to survive the war, and according to an analyst at
Phillip Securities Research Pte Ltd, the price war is expected to
cool in the near future. He said, “There is pricing pressure, but
the wireless market in India has already undergone a long and deep
consolidation from 10 to 4 operators. Reliance Jio has been burning
cash aggressively to gain market share … We expect competition to
rationalise.”

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